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This sounds like a great idea. Although i agree with littelguru that backwards compatibility would present an interesting challenge.

Perhaps old applications could keep the "Program Files" directory and a new directory called "Applications" could be created in the root folder.

Or you could even have an "Applications" directory in both the root folder and the users folder. Then if an application like Google Chrome wants to only install for the user, it could do so without stuffing its self under AppData.